AIB has bowed to political pressure over its decision not to pass on the European Central Bank’s 0.25 per cent rate cut.
Last night, the bank issued a brief statement announcing it would pass on the rate cut to its mortgage holders.
But Bank of Ireland refused to say if it would follow suit.
Just after 7.30pm, an AIB spokesman stated: ‘Following the meeting between AIB, members of the Government and the Economic Management Council, the board of AIB has decided to implement a 0.25% interest rate cut to its variable rate mortgages.’
The decision comes a day after the bank’s bosses were hauled in for a meeting with Enda Kenny and Michael Noonan to explain why the rate cut had not been passed on.
Bank of Ireland and Ulster Bank bosses were also summoned to the meeting of Wednesday’s Economic Management Council meeting.
But when the bank bosses emerged on Wednesday, they infuriated the Government by saying they would not be cutting their interest rates.
It was a major humiliation for the Taoiseach and Finance Minister. It led to calls yesterday for the boards and public interest directors of AIB and Bank of Ireland to be sacked.
But AIB’s move is said to follow a lengthy phone conversation between AIB officials and Kenny earlier in the day.
Eamon Gilmore was pilloried and branded ‘pathetic’ in the Dáil yesterday for taking a soft stance with the lenders, which have been propped-up with billions in taxpayers’ cash.
The Tánaiste insisted he had been ‘very clear’ with the banks when they were summoned before the Government’s Economic Management Council on Wednesday.
AIB’s decision to pass on the rate cut is likely to bring an end to the demands for sackings.
The focus will now shift to Bank of Ireland, which was still offering no commitment to cut its mortgage rates.
When asked last night if it was going to follow AIB’s move, a spokesman told the Irish Daily Mail: ‘All the bank’s rates of interest are under review.’
Of the Government’s Economic Management Council meeting, Mr Gilmore said: ‘The representatives of the three banks who attended the meeting yesterday told us it was not their intention to pass on the reduction to their borrowers.
‘We made the Government’s view very clear to them, namely, that the interest rate reduction made by the ECB should be passed on.
‘People with mortgages need the reduction.’ Fianna Fáil deputy leader Éamon Ó Cuív described the refusal to pass on the reduction to domestic and business borrowers as ‘absolutely scandalous’.
He asked: ‘Will emergency legislation be introduced in the House next week to give the Financial Regulator the power to force the banks to pass on the ECB interest rate reduction?
‘Will the Government replace forthwith all public interest directors who are now not acting in the public interest?
‘Will it seek an immediate emergency general meeting of the guaranteed banks to remove the remaining directors?’
‘It is time the Government walked the walk rather than just talked the talk.’ Sinn Féin TD Caoimhghín Ó Caoláin noted that Junior Minister Brian Hayes had described the response of bank executives as ‘pathetic’.
The Monaghan TD said the word would be better applied to the failure of the Government to take on the banks.
He said: ‘In response to their polite request that the banks pass on the recent interest rate reduction, they were told, no.
‘The Government will have to take the decision to stand up and confront the banks to protect the interests of ordinary mortgage holders.’
While brushing off calls to lower rates earlier this week, AIB’s executive chairman David Hodgkinson said: ‘We have cut rates in EBS [now a subsidiary of AIB], but we are the lowest in the market and we will remain that way.
‘Because we didn’t increase our rates, we’re not going to decrease them.’ Customers affected are those with standard variable rate mortgages. With tracker mortgages, any changes in the ECB rate must automatically be passed on to the customer.
However, with standard variable rate mortgages, the banks have discretion.